Careful due diligence is ALWAYS a must!

Whats that saying? Measure twice, cut once?! Do your best to make sure you know everything you can about the deal before getting into it.

This was VERY helpful as a lot of people, myself included, don't know exactly what kind of due diligence to perform for what kind of transactions.
This had it all: examples, a list of things to look for and even some bonus material on lenders.

I appreciate the time you put into making/posting this thread.

Thanks Tammy!

because I see that someone will probably take this deal the way they're offering it and be in some big trouble down the line. Its sad to see.

If you are using trans funding to flip it if you aren't doing the rehab yourself, don't forget about those fees as well.

you may want to add is the cost of a home inspection. Why pay $250-350 upfront if the buyer is going to do it anyways? Well, if a buyer does the inspection, finds something wrong with the property and gets 'frightened' by the inspection (many buyers are first time homebuyers and not familiar with the whole process), you've just lost a buyer and will need to add at least another 7-21 days of holding costs. Well worth the money; totally optional, but its your choice.

Also, you will need to beware of seasoning requirements. Often times its not just the lender that needs seasoning for a refi, but the TITLE of the property will need to have seasoning in many cases for many of your buyers' lenders (even moreso now with the banks tightening reigns). Make sure to always have your buyers qualified with a broker or lender that you know will meet the seasoning requirements in addition to their own lender. For example, FHA requires 90 days title seasoning. Some lenders require 1 year, so this can be a VERY tricky issue. Unfortunately, if the title isn't held long enough, some lenders will suspect fraud, which is why it becomes an issue. Always keep GOOD records and receipts of all your expenses incurred for the rehab and holding costs to show the amount of work that was done on the property.

It CERTAIN we will SUCCEED!

I wealth of knowledge. Tammy, I appreciate you being willing to share your "lessons learned" from your experience. That is a sign of a true mentor!

What great info!

Thanks for taking the time to share all this with us.

Karen

Thanks SO MUCH for the Due Diligence post. I agree completely that there are some Wholesalers out there that are putting far to much on some deals. There are some of us that know construction backwards and forwards and some who don't. In some cases...I think that I have done due diligence to the point of thinking myself right out of a deal. I do VERY detailed Rehab Evaluation Reports on every property I consider (I have even started doing them for a couple of buyers and make money doing them!). I measure every inch of the property, inside and outside. Every room, every counter-top, every inch. Tammy made a great point regarding the usually "missed" costs involved. When going through a property...you HAVE to include FULL costs involved in the project. Don't forget local permitting, Waste Disposal (Roll-Off's), Demo of the project and little things such as power-washing, how many times you will have the yard cut (unless you are going to do it yourself), the gutters...everything down to the light switch covers! When preparing your costs...be sure to use FULL costs.

Example: If you know that you can get a steel tub and have the surround tiled (nicely!) for around $525.00...put the FULL cost of a demo of the old tub, and full RETAIL pricing for the tub and surround...according to the "RS Means 2011 Contractor's Pricing Guide" is EXACTLY $681 for the tub, which includes "LABOR AND MATERIAL to install a formed steel bath tub with spout, mixing valve, shower head and pop-up drain"...notice the plumbing labor IS INCLUDED in the price...there are NO SURPRISES. For the Surround, a typical Tub / Shower combo is 60" long x 30" wide and 72" tall. I have an extensive background in Bath / Kitchen Remodeling...if you really want to do it right...you want the shower walls to be 84" off the tub. That makes for a total of 73 Sq. Feet of tile for the surround. The book gives you $7.37 per square foot for "material and labor to install ceramic tile in organic adhesive including cutting and grout"...making the walls (73 x $7.37=) $538.01. We'll round that up to $539.00. So far we are @ $1,220 for a tub and shower surround! We all know that that isn't what it is going to cost in the "real world" and most of us can find the tub for around $200-$250, have the tile (material and labor) for around $250 - $300 and a plumber to do the install for around $75 a tub, and the fixtures (nice ones) for around $75, right? That is the point with this example...most people would not think about the fact that when an acrylic tub / shower combo is removed...there is a direct line to the studs (no sheet rock behind the walls). So, here we go again...In order to do an appropriate install for your tile, you need to factor in WATER RESISTANT dry wall (sheet rock) with a "Kerdi" or comparable "waterproof membrane"...this is in order to do it right. Don't "skimp" here...so, now the drywall and waterproof membrane will add around $3.47 a square foot / installed (labor, materials). So add another $253.31 to your total. There you now have rounded up, $1,475.00 for a tub / shower. A lot of typing to say this...as Tammy said, if you DO NOT do your due diligence...you would have missed some of these costs, true. But we also all know that anyone with good construction contacts and a good contractor or project manager will be able to have the labor and materials done for a discounted price. But the point is to make 100% sure that you have covered your "surprise" costs. For every part of the rehab that you price CORRECTLY...you have an accurate starting point for your budget, an accurate number to sell to your buyer...and CONFIDENCE in your rehab project that you have covered all of your bases. As Tammy said...FULL DUE DILIGENCE!

I hope this helps as far as rehab costs are concerned...

Good Luck and Go Get Em!!

Jon

a thorough and thoughtful post.

GREAT post!!

Which HML have you used?

Thanks Karen, Nadine and Bill; If I can help others to save money and not make some common mistakes people make when getting into rehabbing it is a good thing!

Jon, wow, thank you for spelling out the internal elements of a rehab and why surprises pop up. Can you share where people can get the 'RS Means 2011 Contractor's Pricing Guide'? That would probably help a lot of people that don't have access to Hammerpoint or other estimating software. Even at that, it is still important to have actual contractors go out and bid the projects. I don't rely 100% on Hammerpoint.

The "RS Means Residential Repair and Remodeling Costs / Contractor's Pricing Guide is available @ your local Lowe's and Home Depot in the DIY book section. You can get it for about $39.95. I also use software (XactModel)...but have found that using the RS Means book, because it is the standard for Insurance Adjusters...I get a number that always allows for there to be "over-run" or issues already in the budgeted rehab price (no need to add that cost into your numbers). I have done 3 Rehab Evaluation Reports based off of this theory and one just completed and came in $6,200 UNDER Budget. So if your numbers work using this model...you are covered...

Thanks for the well-wishes,

Jon

Its great to have that on this blog post. Hope it helps many

Good info from a while ago. Hope you enjoy

Karen

To bring back.

Karen